Environmental, social and governance

Investing with a conscience is nothing new. From as early as the 1950s trade unions in the United States tried following Christian Quaker action many years earlier, creating social change while also getting a return on their investment for their vast pension funds. They did this by investing in a variety of socially conscious projects such as health facilities and affordable housing. Nevertheless, in such a time, the idea that a company must have any considerations other than its bottom line was a marginal concept.

Sixty-five years later and the UN’s 17 sustainable development goals are released, encouraging things like clean water, quality education and gender equality. Environmental, Social and Governance (ESG) is a formal framework to try and enact such aims through selecting companies in part for how much social good they promote through their business. More than an exercise in philanthropy, these funds are a serious investment. The top ten of 2018 as rated by Bloomberg all had a 5-year total return of between 7 and 13 per cent, making them both ethically and financially attractive options.

With such a plethora of global problems and ubiquitous online media coverage, ignorance of the issues at hand is fast becoming impossible. Coupled to this is a growing ethical conscious among younger generations who see investing their money as more than just an asset growing exercise and a way to wield power for environmental and social change. It is no surprise then that the sector grows at a rapid rate globally; its size increased by around 35% between 2016-2018 according to the global sustainable investment alliance review 2018. ESG based assets currently make up around a quarter of managed assets worldwide according to the global asset management firm Arabesque.

Furthermore, investing in ESG selected companies is not just a strategy to ease ethical qualms; it can act as a tool to increase baseline return. A Hermes investment management global equities investment report laid this out clearly in 2016. Environmental and social considerations were not found to be statistically significant in their effects, but it was a different story for the final G:

“The impact of governance, however, is unequivocal and reaffirms the key insight from our previous paper: companies with good or improving corporate governance have tended to outperform companies with poor or worsening governance by 30bps per month on average since the beginning of 2009.”

ESG investment is here, and here to stay at that. With rapid growth and massive potential for the changing demographics of future investors, it is no doubt on track for a crescendo of uptake within the sector. We have expertise in this area at In2 Planning and would be pleased to discuss this area with you. It makes sound investment sense.

T: 020 7336 7763

E: philip@in2planning.co.uk

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